Rules and Habits of Wealthy Traders.

I see some clever dude who trades from his box room, in a three bedroom semi in Hounslow, West London, is up for extradition to the US, for causing the May 6 2010 flash crash in the S&P E-Mini on the CME, by automating large amounts of sell orders then pulling them at the last minute to profit from the crash. Apparently his internet connection was a nanosecond faster than those in the city of London as he was closer to the server. Can’t see anything wrong myself in that, unless other evidence emerges. Still he does face a possible 380-year prison sentence, maybe in somewhere like Guantanamo or San Quentin, with a possible remission for good behaviour after serving a quarter. But for those of us who aren’t as clever and haven’t a clue how he did it, here’s something completely different:-

I’ve always meant to read those Market Wizard books by Jack Schwager but have never got around to it. I think my reason for this, is the thought that they will be about various other types of trading other than currency trading. Now I know there will be lots to learn from other types of trading, but I’ve always struggled to read books other than forex related. I did read Mastering the Trade by John Carter for example, but found myself skipping parts to get to stuff that was more relevant in my eyes to me. A few years ago I looked at Tim Bourquin’s website and out of about 300 interviews there was only a few about forex traders and so I ended up purchasing only two interviews, number 203 about Kevin a forex scalper and 250 Rudy Leder a forex backtesting guru. The interviews were great but only two about forex was disappointing. Tim did write the book ”Trader’s at Work,” which does contain an excellent interview with Rob Wilson, a forex eurusd 1 min chart trader at that time, which I got from a free book sample download. Again I never actually bought the whole book to read. Now when I heard Rob Booker had purchased traderinterviews from Tim over a year or so ago I thought there would be loads of interviews to get my teeth into, but alas nothing seems to be going on with the website and I can’t even seem to login any more. So what can we learn from other successful traders other than the inspiration and the confidence that success in trading is actually achievable by the person with a computer and an internet connection at home. Well Tim did try to sum up all those 300 interviews into 30 habits of wealthy traders which I give below. In his lectures he did elaborate a lot more but the list is still good. Some may not seem quite relevant to you at the moment, but I’m personally finding more and more of them are to me. Now Rob Booker also did such a list but narrowed his down to 16 in his ebook and I’ve added those below Tim’s. Again you’ll have to get hold of the ebook to get the fully expanded stuff but an interesting list all the same.

30 Habits of Wealthy Traders by Tim Bourquin

1. Wealthy traders are patient with winning trades and enormously impatient with losing trades.

2. Wealthy traders realize that making money is more important then being right.

3. Wealthy traders look at technical analysis as a picture of where traders are lining up to buy and sell.

4. Before they enter any trade they know exactly where they will exit for either a gain or a loss.

5. Wealthy traders approach trade number 5 with the exact same mind set they did on the 4 previous losing trades.

6. Wealthy traders use naked charts and focus on zones.

7. Wealthy traders realized a long time ago that being uncomfortable trading is OK.

8. The markets they trade fit their personality. They are a participant – not an on-looker.

9. They stopped trying to pick tops and bottoms long ago.

10. They stopped thinking about the market being “cheap or expensive.”

11. Wealthy traders are willing to change sides, short to long and vice versa when the market tells them to do so.

12. Wealthy traders trade aggressively when trading well and modestly when they are not.

13. They realize the market will be open again tomorrow.

14. Wealthy traders will never add to a losing trade….EVER.

15. Cash is the target but wealthy traders set goals for their trading that are anything but money.

16. They read trading books, but they read more “crowd” books too ex: The Wisdom of Crowds, The Art of Strategy, Markets, Mobs & Mayhem.

17. They provide liquidity to the markets while watching price and volume.

18. They have a way to gauge fear, greed and speed of transactions. One way: tick charts.

19. They practice reading the right side of the chart, not the left.

20. Every wealthy trader trades has an edge.

21. Their position size is calculated exactly on risk tolerance.

22. Profit targets are based on Average True Range.

23. One or two trades a month make their month.

24. Confident decision makers in the face of incomplete information.

25. A losing trade is not a reflection on themselves as a trader.

26. Their business isn’t trading – it’s finding the right trades.

27. They write down or record every trade, price, thoughts, mood.

28. Their conviction on an active trade remains unless something major changes.

29. A winning trade does not result in taking on extra risk the next trade.

30. They trade the reaction not the news.

16 Rules of Millionaire Traders by Rob Booker

1. There is one kind of trading you can be great at. That’s what you should do. And nothing else.

2. Your very best trades are created from: overwhelming evidence on the charts; and a fundamental or order flow ”boost” to drive it.

3. Your investment in a healthy mind- courses, books, motivational and inspiring material, will have the most immediate and positive impact on your trading, more than anything else.

4. Do not drink, smoke, or abuse your body or otherwise become addicted to any substance, person, thing, belief. burden, sorrow or experience.

5. Focus beats natural skill and luck every time. Focus means you do one thing great, and that’s all you do.

6. Trust one person to close out your trades if you break your rules. Guess what? You won’t break your rules any more.

7. Your rules about how to handle losing trades are ten thousand times more important than anything else in your trading. There are two great trading rules about money management that can make you a millionaire many times over. These two rules are:

8. ”The Rule of Ten.” If you prefer to cut off losing trades quickly, find an edge that won’t ever give you more than 10 losing trades in a row.

9. ”The Rule of Thirds.” If you prefer to hold into and work your way out of losing trades. Consider making your second trade 3 times bigger than your first.

10. Radical honesty will unlock long-term consistent profitable performance.(Tell the truth in your journal, don’t hide losses, honesty lifts a weight from your shoulders.)

11. You must believe you can and deserve to make massive profits.

12. Your daily trading plan and ritual is not optional. If you don’t plan, you don’t trade.

13. Your success is directly tied to your obsession with accumulation.

14. If you open a trade with a massive size, then your judgement has become distorted.

15. Never marry a trading position. The market does not ”always come back.” Don’t trade like it does.

16. If you find that you are stuck, reboot. Start anew.

Note: I will emphasise that some of these are explained in much more detail by Tim and Rob themselves in their respective course/books.  I thought I would add that last note in case I get an extradition order for plagiarism and copyright theft to join the clever dude for a two way stretch in some US scrubs. I did also send a note to Rob Booker in the show notes of the traderspodcast, about not getting access to traderinterviews, as I had heard he was interviewing Matt LaCoco and Kim Krompass and I would love to read or hear those interviews. Hugh Kimura did interview Kim on his trading heroes website podcast, but Rob Booker is in a different league in any trading type interview scenario. Well that’s my Saturday night gone, writing my blog and supping a few bottles of ”suds” as they called them in the Shawshank Redemption. Let’s hope that poor chap doesn’t end up there!

4 responses

  1. | Reply

    I found you from Allen’s forex, seems very good and I really enjoyed some of the posts you wrote.

    I was wondering if you would mind sharing some info cause I do have forex knowledge but not of Allen’s strategy yet.

    If you could help me out on below I would really really appreciate it to clarify and make sense of this more.

    1. What is the criteria to define an entry trade to take a position? What would be the ideal order size and details of an entry trade?
    2. What is the criteria to define the a stop loss to manage the risk of having a loss from taking the position? What would be the ideal lifecycle, order size and details of an stop loss?
    3. What is the criteria to define an exit trade(s) to exit a position and take a profit? What would be the ideal lifecycle, order size and details of an exit trade(s)?
    4. Is there any specific economic or market criteria that the strategy needs to operate? This would be specific underling fundamental details, for example, “This can only be traded on NASDAQ equities with a P/E ratio above 20.”
    5. Is there any specific latency or order size volumes that are critical to the strategy functioning?
    6. What are the markets that a strategy like this would operate? Is there any where it is know where it is unable to operate?

  2. You are asking for a lot of information most of which you will find somewhere on Allen’s forum and website. I will give you my quick take on it though. His video’s are an excellent source of information and his chat room can guide you on where he enters. His method is based on Bob Volman’s, ”Forex Price Action Scalping,” which is required reading several times. Entries are made using one of Bob’s seven set-ups off the 70 tick chart. Allen adds his own take on this by adding order flow at the time of entry using level II, time and sales. Stops are placed outside near term resistance, preferably no more than 10 or 12 pips but occasionally up to 15 dependant on volatility. Targets are placed inside near term resistance meaning they are often less than 10 pips and less than the stop loss. This is one reason the win ratio is so high. Allen uses an atm to automatically set a stop loss of 10 pips and set take profits at three levels, usually 3, 6 and 9 pips, but may close at any time with discretion and these pip levels are subject to change with volatility. This he appears to have take from Tim Lucarelli’s book and course. Allen tends to get his stop to break even when the second profit is hit but this is open also to discretion. Bob sets a single take profit of 10 pips and stop loss of 10, but at the end of the day it is up to you to develop your own trade management style and make this method your own. You will see all Bob’s set ups on his dropbox, the link is available on Allen’s forum. I can’t comment on other trading vehicles other than forex, but what is essential is a very small spread which is why the focus is mainly on the EURUSD. I personally manage my trades in a totally different way as you can see if you look at my journal on this blog. I don’t participate too much in Allen’s chat and forum these days because I am developing my own style and his site is about his style, but I do follow his journal screen shots as well as those in ddtrader’s journal. You may find dd to be the most interesting trader on the forum and chat and you may like to read his journal from the start which should help. As for the rest, it’s Bob’s book then Allen who you should be asking if you are interested in scalping like he does. As he is successful and I am still only learning, even if I’m starting to see positive results myself, it is still only fragile. All the best and good luck and remember you won’t learn this over night. Allen says it will take around 3 years and so focus on not losing and preserving your capital to start, by exercising selectivity and working on your patience muscles. Trade only using a small account to start, using your 10 pip stop to define your risk, say 0.2 or 0.5% of capital risked. Stop and take stock if you find yourself off tilt. Cheers.

  3. I recommend the Market Wizard books by Jack Schwager, they are very good. The first one is the best, even though it is about a lot of things that don’t concern me as an FX trader, but oh the psychology! The second in the series is more geared toward modern computerized markets, but still the first one is my favorite.
    My favorite interview in the book is Paul Tudor Jones who I think is one of the top 5 traders who have ever lived. I really enjoy that part. I listen to the audio version of the book about 5 times a year. I have read the print version a dozen times or more.

    You should find the old documentary called: “Trader” it is hard to find since it is out of print, but you can find it online if you look. It has little to do with FX trading, but is amazing none the less, not least for the unvarnished views of the 1980s technology!

    You should also read ‘Reminiscences Of A Stock Operator’ even though it was written almost a hundred years ago, it is a fantastic book about trading.
    My favorite quote is: “It was never my thinking that made me millions, it was my sitting and doing nothing.”

    The hardest thing for me is to hang on to my winning trades, I often look back to see that I had positions at or near the top or bottom, but I just didn’t hang on to them, I pulled 50-70 pips out of a 700-1000 pip move. That is frustrating and it is what I am working on constantly.

    Thanks for your site, I have enjoyed reading your posts.

  4. Thanks for your comment Ezra. Yes I’ve read Reminiscences but have not got around to the Schwager collection yet. I don’t really know which way I’m going with the psychology thing these days, remember this post was written over a year ago in my learning curve. Today it’s more the psychology of the masses that I’m looking at, rather than my own. One successful trader I know, Allen Bary, says he finds the Market Wizard books of no use to the trader at all, whilst many I know say the opposite. I doubt if Livermore or many of those depicted in the Wizard books actually had such books to read themselves, which is why they walked the walk rather than talked the talk. Steve Winiarski of fxsanalytics is where I’m at now, would say the reason many traders are obsessed with their own psychology, is that they don’t know what they are doing on the charts and it is this that causes the fear and greed that is often the traders downfall. This way of thinking does resonate with me. Still I’ve an open mind, but have recently stopped reading trading related books and am concentrating on my own trading skills and Steve’s training which I’m finding very useful to me personally. We all find our own way in this game and there maybe no right or wrong way, just our own way. Success in your own trading my friend. I hope you understand that my comments are really just about me and that you must continue to do things your own way, which may well be a better way than mine.

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